Corporations

Corporations

A corporation is a form of business ownership where the organization is a separate and distinct legal entity from the business’ owners, who are called shareholders. This legal distinction between business and owner creates several opportunities for both tax planning and creditor proofing.

In Alberta, the Business Corporations Act governs the creation, operation, and dissolution of corporations. Other provinces and the federal government have equivalent legislation. Incorporation documents must be completed and registered with the Corporate Registry to create and maintain a corporation.

Who runs a corporation?

The following classes of people control and operate a corporation:

  • Shareholders: The people who own the shares (also called stocks) in the corporation. They often provide the start-up capital, and receive the profits of the corporation through dividends.
  • Directors: Individuals elected by the shareholders to run the corporation. Directors are bound to act in the best interest of the company and can be personally liable if they fail to do so.
  • Officers: The people hired by the directors who run the corporation’s business day-to-day. This includes the President (or CEO), Treasurer (or CFO) and other top managers.

In many corporations, it can be hard to differentiate each role, because one person may be the only shareholder, director, and officer, but these are still separate and distinct positions.

Why should I incorporate?

It is common for people to operate their business as a corporation.

Corporations have many advantages:

  • Unlimited number of owners
  • Ownership is easily transferable and transfers can occur without affecting the day-to-day operations of the company
  • Owners are only liable for the amount of their investment
  • Each owner can have different types of rights and liabilities, depending on the type of shares they own
  • Can have an unlimited lifespan
  • Allows for income splitting between spouses and children
  • The current tax system allows for tax deferral opportunities

Corporations have some drawbacks as well:

  • More complex and expensive to start than a sole proprietorship
  • Are taxed directly and separately from each owner, which requires a corporate tax return to be filed every year.
  • Dissolution can be complex
  • Requires annual filings to keep corporation alive
Incorporating with MHR Law

MHR Law is happy to incorporate your company. Our incorporation package includes:

  • Preparing and submitting incorporation documents to the Registrar,
  • Creating your minute book,
  • Drafting your Articles of Incorporation,
  • Drafting your Bylaws, which includes our flexible share structure,
  • Issuing of shares certificates,
  • Drafting the minutes for the first directors and shareholder meeting,
  • A meeting with one of our lawyers either at your place of business, or at one of our four offices to discuss not only your incorporation but also other legal questions you might have when starting your business.

If you are interested in incorporating, please contact our offices today to schedule an appointment.

Incorporating with MHR Law

Many regulated professions, including lawyers, doctors, dentists, are not allowed to operate their practice through a corporation because their regulating body does not want them to have the benefit of limited liability if they are sued for professional negligence. Historically these professionals only operated as a partnership or a sole proprietor. Now, a special type of corporation exists to allow these parties to receive the same tax advantages a corporation provides, but without the limited liability. These corporations generally have to be approved by the relevant governing body, the Law Society or the College of Physicians and Surgeons, for instance, but otherwise are created the same as other corporations. MHR Law is pleased to provide the same incorporation services for Professional Corporations as other corporations.

Other types of corporations
Holding and Operating Company

You may have heard of Holding Companies and Operating Companies. These terms refer what you do with your corporation, rather than the legal makeup of the corporation. From a legal perspective, both are normal corporations, and you can turn a holding company into an operating company and vice versa simply by selling shares and assets.

A corporation has limited liability. When someone successfully sues a corporation, for causing an accident, failing to pay a debt, wrongful dismissal or breach of contract, for instance, the judgement creditor can only seize the assets of the corporation, not the assets of the owners (the shareholders). However, what if the corporation does not have any assets or its assets are not worth very much? Then the judgement creditor is out of luck. In order to take advantage of this outcome, people often choose to organize their business with a holding corporation and an operating corporation.

The holding company (Holdco) will ‘hold’ or own all of the valuable assets needed to operate the business. This can be land, equipment, or cash. Holdco typically also owns all the shares of this company, although this is not required. Holdco then leases or borrows these assets to the Operating Company (Opco) to use. Opco hires the employees, enters in to contracts, and generally operates the business. This is where the risk of litigation comes from. If someone successfully sues Opco, the judgement may bankrupt Opco, but that is okay, but because the main assets needed to run the business are in Holdco, which the judgement creditor cannot access. The shareholder can incorporate a new company, lease these assets to the new Opco, and continue doing business with minimal damage and interference. Holdco may own multiple Opcos at one time. This strategy is beneficial when you want to minimize the risk from one project or business from affecting the rest of your business ventures.

Unlimited Limited Corporation

As the name suggests, this is a special type of corporation does not have the advantage of limited liability for its shareholders. These corporations are typically used when a US resident wants to operate a Canadian subsidiary. There are several tax advantages for US-resident shareholders in this case. These tax benefits typically outweigh the risks created by the unlimited liability. We do not recommend using these corporations if all the shareholders are Canadian residents.

Distributing Corporation

The Business Corporations Act defines a distributing corporation as “a corporation that is a reporting issuer for the purposes of the Securities Act.” Generally, if your corporation is raising funds by issuing securities to the public and is subject to the Securities Act, you may also have additional requirements under the Business Corporations Act as a distributing company. If you are considering raising funds for your company by offering shares, bonds or other instruments to the public, even if you are not listing your company on a public stock market, talk to us to ensure you are meeting not only your requirements as a distributing company, but also your obligations under the Securities Act.

Extra-Provincial Corporation

A corporation must be registered in every jurisdiction it does business. As such, if your corporation was originally registered in another province, you need to register in Alberta as well, once you start to do business here. The same is true if you have an Alberta Corporation that is now expanding into other provinces. Martinson Harder can assist you in registering your corporation in Alberta and its neighbouring provinces.

Shelf (or Shell) Company

Before technology made it possible to incorporate quickly, a law firm would incorporate several corporations, just to have on hand. They would sit on the shelf until a client came through the door needing a corporation right away. The lawyer grabs one of these corporation off the shelf, and transfer it to the client, allowing the client to start doing business through a corporation right away, rather than having to wait to mail documents to and from the Corporate Registry. Often people would ‘return’ this corporation once the registration for their new company arrived. Now that we can incorporate online, we can create a brand-new corporation for you the same day you ask for one. In fact, lawyers no longer recommend using shelf corporations, because of potential liability from the shelf corporation’s past use.

Other Corporate Services

MHR Law is pleased to offer the following corporate services:

  • Amalgamations
  • Amending Articles or Bylaws
  • Annual Returns
  • Declaring Dividends
  • Dissolution of Corporation
  • Extra-Provincial Registration
  • Name Changes
  • Redeeming Shares
  • Reorganizations and Rollovers
  • Sale of Shares
  • Issuing Shares
  • Trade Name Declaration
  • Unanimous Shareholders Agreements
  • Updating non-complying Minute Books
Many of our corporate services have fixed rates. Please call for a quote today.